What Are Z-Shares?
A Z-share is a class of mutual fund shares exclusively available for employees of the fund’s management company. These shares are often provided as part of an employee’s benefit plan or compensation package. Because of their unique status, Z-shares come with attractive perks compared to regular mutual fund shares.
Key Takeaways
- Z-shares are mutual fund shares designated for employees of the management company.
- They are commonly included in employees’ benefits packages, sometimes matched by the employer. They promote long-term employment by adding value to the offerings for employees.
- Unlike many other mutual funds, Z-shares usually do not incur front-end or back-end fees, making them cost-effective.
How Z-Shares Work
Z-shares typically fall within the category of no-load funds, making them highly appealing for employees. They are free from front-end or back-end fees. In addition, these shares frequently feature the lowest expense ratios in the mutual fund category. Though Z-share investors pay the same management and miscellaneous fund expenses as other investors, these generally do not include distribution or service fees. This is because Z-shares are bought and sold directly through the mutual fund company sans third-party mediators.
Similar to stock options and incentive grants, mutual fund companies use Z-shares as compensation components or reward packages. Some companies even offer equivalent shares as a form of employee bonus. Held in employee benefit accounts, all Z-share transactions are managed by the fund company, which also provides detailed investment reporting to employees.
Other attributes of Z-shares are akin to those of other share classes within the fund. The total Z-share assets go into a pooled fund managed to create operational and economic efficiencies. Open-end fund Z-shares need to be transacted at the forward price, which is the next reported net asset value.
Overall, mutual fund companies incorporate Z-shares as a firm-wide incentive structure. This financial instrument benefits the entire organization, boosting staff morale, loyalty, and aligning long-term career goals. Furthermore, Z-shares serve as a robust part of employee compensation plans and bolster overall company morale.
Inspiring Example: Franklin Templeton Z-Shares
Franklin Templeton, a renowned mutual fund manager, provides Z-shares for almost all their mutual fund offerings. One notable example is the Franklin Mutual Shares Fund (MUTHX), offering A, C, R, R6, and Z shares. The Z-shares in this fund lack front-end and back-end fees, thus ensuring reduced costs for employees.
The expense ratio for the Z-shares class is a low 0.81%. Furthermore, with an annual 12b-1 fee of 0%, the annual expense remains minimal. Thanks to the absence of distribution and service fees, the Z-shares have notably low expenses, contributing to high reported returns since inception.
Related Terms: mutual fund, front-end fees, back-end fees, expense ratio, net asset value.
